Hextar Global (HGB) reported a net profit of RM12.1m (+20.5% YoY, -48.1% QoQ) for 1QFY24, with the weaker sequential performance largely due to seasonality as the current quarter saw weaker contributions from the Fruits division. Incidentally, the recently-acquired Fruits division contributed to the stronger YoY performance, as the Agriculture and Specialty Chemicals businesses continued to provide steady support. While only making up 15% and 18% of our and consensus full-year estimates respectively, we deem the numbers broadly in line on expectations of stronger catch-ups in subsequent quarters. Our earnings estimates are left unchanged. We also continue to remain conservative on our assumptions for the Fruit business given the seasonality of its earnings. Our Neutral call is retained with an unchanged RM0.90 TP.

• Revenue contribution from the agriculture segment slipped marginally to RM80.5m (-1.4% YoY, -3.3% QoQ) in 1QFY24, with a corresponding net profit of RM3.9m (+10.9% YoY, -50.3% QoQ). The decline in profitability on a sequential basis was largely due to seasonality-related (festive) cost increases. Going forward, management expects improved performances in the coming quarters on positive upward revisions in selling prices of herbicide products, and will continue to focus on maintaining its market leadership position on the back of growing demand for agrochemicals.
• Revenue contribution from the specialty chemicals segment improved notably to RM102.9m (+80.3% YoY, +30.8% QoQ) in 1QFY24 as the Group successfully secured a contract in the oil and gas sector. Net profit contributions jumped to RM17.8m (+121.8% YoY, +32.6% QoQ) as a consequence. Management remains encouraged by the prospects of the oil and gas industry (specialty chemicals and catalysts) in 2024, while also making acquisitions last year (Propel Chemicals) to mitigate cyclicality in the oil and gas industry and ensure sustainability in the Division’s earnings.
• The current quarter saw ongoing contributions from the recently-added fruits segment (in November 2023), with revenue of RM52.9m (-7.7% QoQ) and net profit contribution of RM0.4m (-96.1% QoQ). The weaker sequential performance is predominantly due to seasonality factors. Prospects for the division remain encouraging on the back of growing global awareness and rising demand. On a related note, the Group announced that its 51%-owned Durian Boat Global Sdn Bhd has entered into a joint venture agreement with Shenzhen Yoursender Investment Co Ltd on a 40:60 basis to principally collaborate on the operation of downstream durian product factory, distribution of durian, providing cold storage service and door-to-door delivery services. Prospects are encouraging considering the immense consumer market in China. It has been reported that the country imported USD6.7bn worth of durians in 2023, with Vietnam securing a surprising 31% market share.

Source: PublicInvest Research - 4 Oct 2024